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Living Rainbow H2O - Dr. Mae-Wan Ho

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Nuclear Subsidies Largesse by other Names

A new inquiry into energy subsidies has been launched by UK’s cross-party Environment Audit Committee [1], but will it uncover all that are to go into nuclear energy? Prof Peter Saunders

Many ways to hide nuclear subsidies

Ever since it decided to commission a new fleet of reactors, the
UK
government has insisted that nuclear power is a safe and economical source of
low-carbon electricity. It will not be too cheap to meter, as we were told half
a century ago, but it will not require a subsidy and it will not be given one. That was what the Labour government said when it took
the decision [2], and it’s what the coalition government is saying today
[3].

Despite
this unusual parliamentary consensus, it is hard to take the claim seriously.
You only have to look at the published data on the costs of building nuclear
power stations. The figures in the White Paper were obviously selected to make
the case and were implausibly optimistic (see [4] The Real Cost
of Nuclear PowerSiS
47). There was solid evidence that in successive drafts,
estimates had been adjusted to make the case appear even stronger [5].
The large US financial group CitiBank had carried out a detailed study and come
to the unequivocal conclusion that without a large subsidy nuclear energy would
be a bad investment [6].

Most
observers expected the government to devise schemes to allow it to subsidise
the nuclear industry while denying that was what it was doing. The denials
would not have to be very convincing because the opposition in Parliament,
whichever party it was, would be just as anxious as the government to justify
the decision to go nuclear. For example, while the industry would be responsible
for disposing of the nuclear waste, the government would take over this
liability for a fixed price, and no one doubted that this
will be at a very generous rate. There would also
be some form of extra payment for low carbon energy in general, and the
scheme would be arranged to favour nuclear. The new reactors are to be much
larger than any existing generators, and National Grid
will have to pay £160 m a year for backup in case one of them unexpectedly has
to be taken off line. This cost will be incurred specifically because
of the new nuclear plants, but it will be charged to all energy generators,
thus making nuclear appear cheaper than it actually will be. The rationale for
this, according to National Grid, is that [7] “increasing
costs on larger users [instead of the taxpayer] could delay the commissioning
of large nuclear plants by a number of years.” In
other words, nuclear energy could not compete without this subsidy.

In the event of a serious incident, the owners of nuclear plants
will be required to meet claims up to a total of £1 bn. This is insignificant when compared with
the total cost of Fukushima, which has been estimated to be no less than £47 bn
and possibly as much as £167 bn [8]. Paying for insurance to cover such a loss
would obviously increase the cost of nuclear power, especially since Fukushima,
it is no longer credible to insist that such an event cannot occur in a
technologically advanced country.

There
are many other ways in which governments can and do provide substantial
financial assistance for nuclear power without openly admitting that these are
subsidies, some examples are given by the Union of
Concerned Scientists in the US [9] , and by ISIS in France (see [10] The
True Costs of French Nuclear Power, SiS 53).

Down to brass tacks

The government
may or may not have believed its claim that nuclear energy would be profitable,
but the industry clearly did not. They knew they could not go ahead without a
subsidy and that subterfuges like charging too little for dealing with the
waste were not going to be enough to make up the difference. So while Centrica,
Hitachi, E.On and RWE all expressed some level of interest, only Electricité de
France (EDF) is currently negotiating with the government.

That
leaves the UK in a very weak position; having
committed the nation to nuclear without a plan B. The UK is falling behind
other countries in developing renewables, and the government is not even
standing up to the opponents of wind farms, many of whom are its own MPs. Many critics believe this is deliberate: just as
the railways were deliberately privatised in a way that made it very difficult
for a later government to take them back into public ownership, so the failure
to promote renewables is intended to make the nuclear option the only available
choice. Unfortunately, it also means the government cannot rely on the market
to keep down the cost of nuclear power because there is no competition.

EDF
has obtained planning consent for two reactors at Hinckley Point, which is on
the Bristol Channel in the west of England. There are already two reactors on
the site, one in the process of being decommissioned and the other scheduled to
close down in 2023.

The
government and EDF have yet to agree on the “strike price”. The term comes from
the financial world but here it simply means the price that the company will
receive for the electricity it generates, whatever the cost of other
electricity may be. The price is fixed in real terms, i.e. it will increase
with inflation but it will be paid whatever the wholesale price for other
electricity is at the time. Since the contract will probably run for the
unusually long period of 40 years, the exact figure chosen will be crucial.
Clearly a strike price that is too high will be a massive subsidy for nuclear
power. Forty years from now the chief
alternative sources of energy will be renewables (with the necessary
technologies probably imported from Germany and China, both of whom are
actively developing them) and experience shows
that the cost of generating electricity from renewables, unlike that of nuclear
power, tends to fall substantially over time.

We
must not confuse temporary subsidies to help new technologies like solar and
wind to get off the ground, with permanent subsidies to support technologies like
nuclear that will never pay their way (See [11] and ISIS’ comprehensive report
[12] Green Energies - 100%
Renewable by 2050).

Some numbers

What even the critics did not anticipate was how quickly an overt
subsidy has appeared on the table. The negotiations are still going on, but
here are some numbers to keep in mind. In 2008, EDF told its investors that it
could produce nuclear power at £45/MWh, [13]. In 2012, the head of EDF, Vincent
de Rivaz, said that EDF would be asking for a strike price “lower than £140/MWh.”.
According to reports, the government is hoping
to offer not more than £100/MWh. We have no way of knowing how the
negotiations are going, but if they settle at £110/MWh, that would represent roughly a 2.5-fold increase in five years.

In
the White Paper [2], the construction cost of a 1 GW plant was estimated to be
£2.8 bn. We are now told that the two at Hinkley Point will cost £7 bn each.
Again, a factor of about 2.5.

When
asked why the current estimates are so much higher than those of five years
ago, de Rivaz explained that it was because “a lot of things have changed:
four years inflation, cost of commodities, steel concrete. And it was based on
Flamanville.”

That’s
not very convincing. Total inflation over the period
has been about 11% and steel and concrete have risen only slightly more than
that. As for Flamanville, the 1.6GW nuclear power plant currently being built
in France, this was supposed to cost €3.3bn and begin generating electricity in
2012. The latest estimate [14] is that it will cost €8.5bn (£7.1bn) and go on
line in 2016. EDF claims that an important factor in the high cost of
Flamanville is the “first of a kind effect”, but they and others now estimate
that the two Hinkley Point reactors will each cost
about the same as Flamanville, which rules that out as an explanation.

The bid for the 2012 London Olympics estimated the cost to be
about £3.4bn; by
2007 this had risen to over £9bn. The government eventually reported that the
total cost had been £8.9 bn [15] and expressed its satisfaction that the
project had come in “under budget”. The budget it was referring to was of
course the figure quoted in 2007, not the very much lower one on the basis of which
the decision to bring the Olympics to London was taken. In the same way, when
EDF announced in March 2012 that cost of the Flamanville reactor was being
“revised”, they also claimed that it was “still on schedule”, even though no
electricity is to be produced until 2016, four years later than had been
promised [16]. What they meant was that there had been no further change since
the last postponement.

When
governments are deciding whether or not to commit themselves to a project,
there is an obvious incentive for all concerned to be very optimistic about how
much it will cost, how long it will take, what it will achieve, and what sort
of profit margins the suppliers will expect.

Once
the decision has been taken and the contractors are making bids on which they
will be expected to deliver, the time for optimism is over. The industry will
be looking for prices on which they are confident they can make good profits,
and if the government still wants to go ahead with the project, the most it can
do is to argue at the margins.

That
would explain how the cost of building a 1.6KW nuclear power station can be
estimated at £2.8bn in 2008 and £7bn in 2013. The former was considerably lower
than any other estimate we could find at the time [4]; the latter seems to be
in line with what others are suggesting. That is not to say that the current
estimate is correct; nuclear power plants have a habit of taking far longer to
build and costing far more than was promised, as Olkiluoto and Flamanville
demonstrate all too clearly.

Finally,
according to recent reports in the French press [17], EDF is considering giving
up on the European pressurised reactor (EPR), the design used at both
Flamanville and Olkiluoto and planned for Hinkley Point, and replacing it with
a range of smaller reactors. If the UK government goes ahead with the current
deal, we could find ourselves having chosen an expensive and out of date design
that even supporters of nuclear energy will regret.

Now what?

There
is still time for the government to change its mind. It has lost ground but it
can still follow the Germans – and others, even the French (Fukushima Fallout SiS
51 [18]) – and invest in renewables. It would mean a loss of face; but because the
rush to nuclear began under Labour and has continued under the Conservative/LibDem
coalition, neither side will be able to accuse the other of a U-turn. The
harder problem will be to overcome the cosy relationship
that has been built up over half a century between the government, the military
and the nuclear industry.

But that is no excuse for not taking the right decision. Not only
is nuclear energy hazardous, it is not even better on short term economic grounds (see our
recent report [19] Death
Camp Fukushima Chernobyl - an ISIS special report, SiS 55).If the government
signs up to a poor deal now, our children and grandchildren will be paying the
cost for the next 40 or more years.

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There are 3 comments on this article so far. Add your comment above.

David Llewellyn Foster Comment left 7th June 2013 14:02:20Excellent and timely article, thanks to Professor Saunders.
As Ernest Rutherford so presciently indicated way back, when science was still relatively open to independent moral constraint, "atomic energy" can never be economically viable when all the costs and liabilities of such "moonshine" are considered inclusively.
The lethal legacy being bequeathed to future generations is an ecocidal monument to the criminal irresponsibility of governments and their ever-opportunist patrons, the captains of industry.
This entire nuclear infrastructure determines the way that the whole world operates, and is the very foundation of the "inverted totalitarianism" that Sheldon Wolin has most aptly described as characterising the present, disreputable, state of affairs.

Mrs. Dee Comment left 8th June 2013 04:04:46In America, a new Gallup poll found that over 70% of Americans want more Wind and Solar energy.
And Smart investors are investing in Renewable Energy.
Read this:
"Solar Scores a Big Win Over Nuclear"
"The debate over costs is over. Solar power won. Nuclear power lost. If your utility wants to own a new power plant, a utility-grade solar farm is a better deal than a new nuclear power plant. Perhaps that's why Warren Buffett's Berkshire Hathaway (BRK.A) is building the world's largest solar farm and not a new nuclear power plant."
http://www.thestreet.com/story/11911544/1/solar-scores-a-big-win-over-nuclear.html?cm_ven=RSSFeed
Also, an excellent website with citizens around the world monitoring radiation and Forums on renewable energy and Fukushima updates is
www.enenews.com

Todd Millions Comment left 9th June 2013 05:05:16An exellent overveiw-Bloomberg reported some years back that EDF was buying up tranformers for connecting wind farms too power grids,and dumping them in a swampy storage feild-to get them off the market.They also used fronts in this effort and it included submarine power cable-too remove from availability.As well one point overlooked-Solar and wind power tend to lend themselves to incremental increase in capacity-if costs of a project mysteriously rise during construction,unlike large coal or nuc projects,an-abeyence clause can be invocted with the various contractors that work will stop till price and availability of components just as mysteriously return to prevois bid levels,or no pay for anyone.This prevents the -round robin price risng that always doubles and triples the cost of -must be done in a wad projects.